What are effective collection methods for law firms?

A “cash-flow crisis resulting from inadequate [Accounts Receivable (AR)] collection practices in a growing business is generally the greatest threat [a] business will ever face.”^[1] Small law firms and solo practitioners are especially susceptible to having inadequate AR collection practices because they often do not have a dedicated billing staff, and attorneys do not have the time available or the experience necessary to handle billing and collection matters.

The following are some effective proactive and reactive steps that law firms and solo practitioners can take to increase their collection rates and improve their cash-flow:

1. Ask for evergreen retainers.^[2] Your billing software may be able to automatically generate the retainer refill request, but realize that clients may ignore emails so following up with a phone call may still be necessary.
2. Address collection of past dues fees in your fee agreements with clients.^[3]
3. Consider invoicing individual clients at the time that it might be easiest to get them to pay, for example right before a client’s payday or Accounts Payable check run date, rather than billing all clients on the same date.^[1]
4. If you are invoicing all clients at the same time, create a weekly or monthly schedule for attorney/staff time entry, approval of draft invoices, and date for issuing invoices, and stick to it every month.^[2]
5. Send invoices electronically rather than by U.S. mail.^[1]
6. Make sure your service descriptions are easily understandable because clients are more likely to find the work acceptable and pay the invoice if they understand the services provided.^[2]
7. Make at least three contacts with clients before the invoice due date, typically the day the invoice is going to be sent out, a day or two after you send the invoice to see if the client has a question, and on the due date to see if there is anything that will cause a hold-up in the payment.^[4]
8. Offer a discount if the client pays the invoice early.^[4]
9. Make friends with the client’s AP personnel.^[4]
10. Consistently follow up with clients who have past due balances. Re-send the invoice when it is 30 days past due and send a collection letter at 60 and 90 days past due.^[2] Your billing software may be able to automate this process, but realize that many clients will ignore emails so sending a personalized letter and following up with a phone call is still a good idea at 60 and 90 days past due.
11. File a lawsuit to collect payment or send the account to a collection agency. ^[2]
12. Accept any partial payment offered by a deadbeat client, and write off any remaining balance.^[2]

Many attorneys worry about sending accounts to collections or filing suit against clients for non-payment due to concerns over the effect it will have professional liability insurance premiums or the risk of malpractice claims. But some attorneys have decided that the premiums are going to up anyway and it is time to stop encouraging clients to believe that they do not have to pay their attorneys.^[5]

References

1. AR Best Practices
2. Billing & Collection Skills for Lawyers
3. Collecting Debt from your Law Firm Client
4. Billing & Collections Best Practices
5. Shop Talk Deadbeat Clients